Green Bonds And The Emergence Of Sustainable Finance In The Nigerian Capital Market

June 04, 2019

In December 2017 the Federal Government issued the first green bonds in Nigeria, with its N10.69 Billion Sovereign Green Bonds. The proceeds of the bonds were utilized in funding three green projects- the Energizing Education Project, Rural Electrification Project and the Afforestation Project. Recently, North South Power Company Limited through NSP-SPV Plc issued the N8.5 Billion Green Guaranteed Infrastructure Bond to fund the company’s generation of sustainable energy to Nigerians. The Banking sector is not left out, as Access Bank also recently obtained the approval of the Securities & Exchange Commission (SEC), to commence the Book Building process for its proposed N15 Billion Green Bond.

There appears to be increased investor interest in green bonds, not just in Nigeria but worldwide. In 2018 alone, green bond issuance amounted to over $160 Billion. The exponential rise of investor appetite in green bonds started in 2015 after almost 200 countries including Nigeria signed the Paris Climate Agreement, committing to protect the environment and mitigate global warming.

Due to increased investor interest in green bonds, it is essential to understand what constitutes green bonds.

What is a Green Bond ?

The distinct characteristic of a green bond is that the proceeds are used exclusively to finance or re-finance environment-friendly projects, such as clean water and renewable energy. It is a sustainable form of finance[1] that can be issued by the Federal/State Governments, Supranaturals and corporate entities.

Due to increased local appetite for green bonds, the SEC and Nigerian Stock Exchange have respectively issued regulations on the issuance of green bonds. These regulations are modelled after the Green Bond Principles, an international set of guidelines which promote the integrity of green bonds market.

To qualify as a green bond in Nigeria, the proceeds of these bonds must be invested in one or more of the following projects:

  1. renewable and sustainable energy;
  2. clean transportation;
  3. sustainable water management;
  4. climate change adaptation;
  5. energy efficiency;
  6. sustainable waste management;
  7. sustainable land use;
  8. biodiversity conservation;
  9. green buildings (Commercial Real Estate Development); and
  10. any other categories as may be approved by the SEC

Conditions for the Approval of a Green Bond by the SEC

In addition to the general registration requirements for bonds, a green bond issuer is required file the following documents with the SEC:

  1. a letter committing to invest all the proceeds of the bond in projects that qualify as green project(s) or assets in line with this rule;
  2. a feasibility study and report highlighting the benefits of the proposed green project and its positive effect on the environment/climate;
  3. a prospectus showing project categories, project selection criteria, decision-making procedures, environmental benefits, use and management of the proceeds;
  4. an independent assessment or certification issued by a professional certification authority approved or recognized by the SEC.

Apart from the exclusive use of proceeds to qualifying green projects, the reporting and disclosure requirements to the SEC is what especially sets green bonds apart from regular bonds. In addition to the above conditions, the issuer must provide the SEC and NSE with an annual Bond Report containing a list of the projects and assets to which proceeds have been allocated and the effect these projects have had on the environment. This report must be submitted annually for the duration of the bonds.

Advantages of Green Bonds

In addition to the benefits provided by regular bonds such as fixed regular income, low risk and tax savings, green bonds also provide its Issuer with the following benefits:

  1. exposes the Issuer to classes of investors who only consider investments having increased environmental, social or governance implications. Apart from increased interest in green bonds following the Paris Climate Agreement, there appears to be pressure on institutional investors and fund managers to invest in climate friendly investments;
  1. fosters a greater level of transparency and institutional accountability than regular bonds. The clarity and demonstration of the use of proceeds in green projects as well as its monitoring makes it attractive to investors and may even reduce the risks associated with investments;
  1. enhancement of the reputation of institutions that offer green bonds. These institutions are afforded the opportunity to brand themselves as forward thinking, innovative, and sustainable;
  1. attraction of investors outside the domestic financial markets;​

Despite the numerous benefits of green bonds, it is worthy of note that the major challenge faced by investors with this asset class, is lack of liquidity. Being a small and developing market, purchasing and selling green bonds is not as easy as regular bonds.


Traditionally, investors evaluated their investment decisions based on financial measures alone. However, in recent time, these decisions have taken into consideration not just financial but also ESG concerns. Although sustainable finance, particularly green bonds, is still in its nascent stage in Nigeria, it is definitely an area to watch due to increased consciousness of institutions and investors in the protection of the environment.

[1] Sustainable finance refers to any form of financial service integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the lasting benefit of both clients and society at large.

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